NZ dollar buoyed by Fonterra plans to expand capacity

Aug. 28
(BusinessDesk) - The New Zealand dollar rose after Fonterra
Cooperative Group yesterday said it would maintain its milk
price forecast, expand its local processing capacity and
form a partnership to help sell its products in China, New
Zealand's largest trading partner.

The kiwi gained to
83.75 US cents at 8am in Wellington, from 83.67 cents at 5pm
yesterday. The trade-weighted index was at 78.98 from 79
yesterday.

The local currency has jumped half a US cent in
the past 24 hours following the announcement from Fonterra,
the world's largest dairy exporter. Dairy is New Zealand's
largest commodity export and traders had been concerned the
company could have lowered its $6 per kilogram of milk
solids forecast for 2015 as increased supply weighs on
prices.

"The kiwi was the star of the night as the
announcement by dairy giant Fonterra that it's entering a
joint venture to meet demand for infant formula in China was
met with approval by the market," Boris Schlossberg,
managing director of foreign exchange strategy at BK Asset
Management in New York, said in a note. The investment
"suggests that Fonterra may be able to smooth out its
delivery problems and also indicates that its stream of
income from China - which is a significant contributor to
the New Zealand economy - is likely to remain in
place."

The kiwi may target 84 US cents, Schlossberg
said.

The local currency's gain was assisted by a broadly
weaker US dollar overnight, with the US dollar index
declining from its highest level in more than a year.

The
New Zealand dollar edged lower to 89.69 Australian cents
from 89.77 cents yesterday ahead of Australian data on
capital expenditure today. While data for the second quarter
may be weaker reflecting a decline in mining investment, the
currency affect could be muted as capex forecasts for the
coming year may be revised higher, Kymberly Martin, senior
market strategist at Bank of New Zealand, said in a
note.

The kiwi slipped to 63.47 euro cents from 63.57
cents yesterday. The European Central Bank meets next week
amid elevated expectations of additional stimulus following
ECB President Mario Draghi’s comments about the region’s
declining inflation in Jackson Hole last week. However, the
ECB is unlikely to take new policy action next week unless
August inflation figures due tomorrow show the euro zone
sinking significantly towards deflation, Reuters reported,
citing unnamed ECB sources.

"The barrier to QE is still
very high," said one of the sources, all of whom requested
anonymity, adding that discussion at the meeting was
expected to centre on reinforcing existing policy measures
of credit easing and liquidity provision, according to
Reuters.

The local currency was little changed at 50.53
British pence from 50.55 pence yesterday, and at 87.01 yen
from 87.02
yen.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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